Being a collection of thoughts, observations, comments, opinions and views on investing--especially for the long term.
Disclaimer: This blog is not intended as professional advice. Please seek your own professional advisor who can properly review your particular circumstances. The author disclaims any liability, loss, or risk taken by individuals who directly or indirectly act on the information contained herein. All readers must accept full responsibility for their use of this material.

Thursday, March 17, 2005

But the Reality Is: Patterns Last Until They Don't (II)

Using data available at www.globalfindata.com, I went further back in time to see if the years ending in a "5" continue to show stellar returns. Here's what I found for the 124-year period from 1801 through 1924 (to complement Dr. Yardeni's study for the 80-year period from 1925 through 2004):

0: 3.0% (4 out of 12)1: 3.3% (4 out of 13)2: 7.7% (3 out of 13)3: -1.1% (9 out of 13)4: 0.5% (6 out of 13)5: 4.8% (4 out of 12)6: -1.9% (5 out of 12)7: -7.8% (7 out of 12)8: 8.0% (3 out of 12)9: 4.4% (4 out of 12)

For the 1801-1924 period, the years ending in a "2" or an "8" did better than the years ending in a "5." The magical performance of years ending in a "5" has, well, become a lot less spectacular.

However, for anyone wishing to continue to believe in miracles, please note that we must go all the way back to 1875 before finding a year ending in a "5" that actually shows a negative return. You might say that you've got close to 130 years of history on your side if you're counting on this year (2005) showing a positive return as well.

Yet, something tells me that this "fives" pattern is little other than a fluke, a coincidence, and maybe even a little data mining.

Moral: In the financial markets, patterns tend to last until they don't . . . and superstititious investors only believe until they lose.

I would like to comment about patterns last until. How can technical analysis account for the unexpected sudden death or illness of a guy like steve jobs. A sudden unexpected major lawsuit against a company. Even a unexpected earnings suprise on the downside..What about a takover offer for a company that nobody was expecting. I have nothing against technical analysis Although I remain skeptical about it but I do find it interesting to listen or read about it. I am at heart a fundalmentist when it comes to investing because I believe that invariably and in the end a companies stock price must at some point reflect the performance of the company. Their many stocks that have increased tremendously in value apple computer traded at just 5 dollars in 1998 today its around 400 dollars also petsmart stock traded at just 2 dollars in the year 2000 now its trading around 50 dollars a share theirs many other stocks but to many to list here. So you can still make lots of money buying and holding if you choose the right stocks